Kathir Foundation Vs Director of Income Tax (Madras High Court)
Summary: The Madras High Court allowed the appeals of the assessee trust for AY 2007-08 and held that a violation relating to investments does not justify denial of exemption under Section 11 on the entire income of the trust. The appeals arose from an order of the Income Tax Appellate Tribunal dated 19.05.2012 concerning AY 2007-08. The substantial questions included whether the entire income could be taxed at the maximum marginal rate when the alleged violation of Section 11(5) was confined to a particular amount; whether the Tribunal was justified in denying Section 11 exemption on the entire income; and the effect of the proviso to Section 164(2) and CBDT Circular No. 387 dated 06.07.1984.
The Court noted that identical questions had already been decided in favour of M/s.KAS Foundation by its order dated 01.12.2025 in TCA Nos.337 and 338 of 2012 and extracted the operative portion of that decision. In that decision, the Court recorded that the Commissioner of Income Tax (Appeals) had held that where a trust contravenes Sections 13(1)(c) or 13(1)(d), the maximum marginal rate applies only to the part of income affected by the violation and the entirety of the trust’s income does not lose Section 11 exemption.
